The effects of the global financial crisis and the subsequent growth slowdown on investment banks, stock market investors, companies and exporters are well known. But the poor too will suffer.
They have been served a double whammy in the past year. The rise in food prices has reduced the ability of the poor to keep money aside for discretionary spending. A typical poor family in India, for example, spends at least Rs7 out of every Rs10 it earns on food. It is good to remember that while wholesale price inflation has started coming down in recent weeks, consumer prices for a typical basket of goods bought by urban and rural workers are still growing at double-digit rates. This is a problem that political parties will have to grapple with in the months leading to the national elections.
The other blow has come from the financial crisis and the slowdown in growth. Incomes will be under pressure. There are already reports that jobs are being shed in labour-intensive industries such as textiles and gem polishing. But that will hopefully be balanced by higher rural incomes as a result of the farm loan waiver and higher procurement prices.
The exact effects of the food and financial crises on the incomes of the poor cannot be gauged right now. But a senior official at the International Monetary Fund (IMF) believes that we ought to worry. “For the low-income countries in particular, recent gains in poverty reduction and improvements in living standards are now in jeopardy,” IMF deputy managing director Murilo?Portugal said this?week.
The Indian government, in conjunction with the central bank, is expected to announce a stimulus package this weekend. The details are not available right now. The past few weeks have seen influential lobbies descend on the government in search of sops for their members. This newspaper has overall been sceptical about the ability of the government to spend large amounts of money right now—the fiscal deficit is already too high and the ability of the state to deliver on spending programmes is suspect.
But in case the government does want to go ahead with a fiscal push, it should pay special attention to sectors that employ lots of workers.
Will the economic crisis make things worse for the poor? Write to us at email@example.com